Recently, it was discovered that the State of New Mexico’s bank account was not fully reconciled, to the tune of $100 million, give or take. You’re probably asking yourself the same thing I am, “How does this even happen?” The State was asked the same question and fingers were pointed, and blame was passed all around among the current and former Governor, the auditors, the system, and probably anyone else who has ever had anything to do with the State of New Mexico. At this point, it really doesn’t matter whose fault it was, but rather correcting the situation, and implementing policies and procedures to keep it from happening again.
Hopefully your organization never has to go through this. The lasting effects are immeasurable at this point but it should be a lesson learned.
Let’s go with the theory that the cause of these errors stems from the implementation of a new accounting software. What is the lesson? Undertaking a financial software package change is difficult for all organizations, but adequate planning can help ensure the easiest transition possible. It’s never easy though and almost always causes problems. I’m not saying they didn’t plan for problems but if this was the true cause, something was missed.
What controls were in place to make sure the bank account was properly reconciled? Honestly, none of us really know, but given the breakdown, we have to assume something was missed, and it was missed for a long time if they can trace the problem back to 2006. Who stood up and said, “Hey, there’s a problem?” It’s possible that somebody did, but it obviously didn’t help.
Where was the audit? We have to remember that auditors cannot act as a part of the internal control structure of any organization, but an audit is designed to provide assurance to the users of the financial statements that there are no material errors included in them. An audit is an important step to add an additional level of comfort to the users. In New Mexico, an audit wasn’t performed. Instead their financial statements were reviewed by independent accountants until fiscal year 2013, in which an audit was performed and a disclaimer of opinion was issued, which alerted users that there were problems and the financial statements could not be relied upon.
With all of that said, let’s all learn these lessons. Don’t let New Mexico’s misfortune become your misfortune. For additional information on the New Mexico situation, take a look at this article.
By Bobby Mikkelsen, CPA